Analyst Picks and Pans: GE, AutoNation, Palm
Analysts Lower Earnings Forecasts for General Electric
Several analysts dropped their earnings projections for GE on Friday, saying it doesn't look likely GE Capital will hit the more optimistic targets.
Nigel Coe of Deutsche Bank lowered his forecast from $1.20 to 97 cents for 2009, writing in an investor note that "we believe that an outcome closer to the low-end to be more prudent."
Nicholas Heymann of Sterne Agee wrote that the $5 billion guidance was "based on obsolete macroeconomic assumptions" and that the worse case scenario laid out under the stress test guidelines appeared more likely. Heymann lowered his 2009 GE earnings forecast to $1 per share from $1.20 per share.
On Thursday, GE said that its finance unit could just break even this year because of the weak economy. The company said earnings could be lower based on models put out by the federal government that show unemployment growing and the economy contracting during the year. Under the forecasts, meant to help financial institutions run "stress tests" to gauge their health, GE said GE Capital would make only $2 billion to $2.5 billion if unemployment averages 8.4 percent this year and gross domestic product falls by 2 percent. Under a more dire scenario, with unemployment peaking at 10 percent and GDP dropping by 3.3 percent, GE said GE Capital will just break even.
GE had previously forecast $5 billion in earnings for GE Capital, which makes a wide variety of loans for credit cards, real estate and big equipment. GE's $5 billion forecast depends on unemployment averaging 7.7 percent and GDP dropping 1.8 percent. But many economists project GDP will fall by more than 2 percent this year, and unemployment is at 8.1 percent and will likely get worse.
GE also revealed that GE Capital is facing higher losses -- projected at $40 billion over three years -- as loans go bad and the value of its assets drop during the financial crisis.
Around noon Friday, GE shares were down about 8% to 9.30.
UBS Financial Downgrades AutoNation
UBS analyst Colin Langan downgraded AutoNation (AN) to sell from neutral on Friday. He noted AN stock has risen 30% since it posted earnings.
Despite better-than-expected fourth quarter cash flow, Langan says AN continues to face liquidity concerns, especially in the third quarter, when its debt covenant thresholds change. Given his reduced sales view, he cuts $0.87 2009 EPS estimate to $0.74 and $1.05 for 2010 to $0.98. He has a 9 price target.
Langan also said, in conjunction with his initiation of U.S. automakers and suppliers, he's cutting his 2009 U.S. sales view to 11 million vehicles from 12 million, reflecting his forecast that 2009 will be the worst drop in the last 70 years.
AutoNation shares dropped nealry 13% to 11.96 during Friday's session.
Analyst Calls Palm's Earnings "Ugly"
Morgan Keegan analyst Tavis McCourt said Palm's (PALM) third quarter results were largely ugly and irrelevant in judging the company's turnaround strategy, as none of the products on shelves in the third quarter will likely be contributing any meaningful revenues within a couple of quarters.
McCourt says, while third quarter trends were bad, fourth quarter is likely to be worse, and PALM as an investment remains a bet on the webOS in the long term and the Pre in the short term (he sees a late-June launch).
He cut his $88.3 million fourth quarter revenue view to $80.7 million, but narrows $0.92 loss to $0.76 loss to reflect continued efforts to improve the cost structure. He kept a market perform opinion on the stock.
Palm shares rose nearly 3% to 7.93 in Friday's trading.